Consumers Beware
- Top 5 Consumer Credit Scams
- Credit Cards Obtained Via 900 Numbers
- Debt Negotiating Can Land You Deeper In Debt
- FTC Files Lawsuit Against AmerDebt
Top 5 Consumer Credit Scams
They can drain your finances, destroy your good reputation, and even get you jailed
Source: Federal Trade Commission.
Credit repair. Credit-repair companies run advertisements in newspapers, radio, TV, and the Internet, offering consumers assistance, for a price, to clean up their credit histories. The Federal Trade Commission (FTC) warns that many of the claims these companies make-that they can remove judgments, liens, and other unfavorable information from credit records, are false. They cannot legally remove accurate negative information from a credit report and any legitimate help they can offer can be pursued by consumers themselves, at little or no cost.
Advance-fee loans. The lenders appeal to consumers who, based on their credit history, can't get a loan. The scammers falsely promise that for an advance payment, even consumers with bad credit histories can get a loan. Some of these lenders make money through the 900 numbers that charge consumers who call to find out about the loans. Others simply charge consumers a fee for a loan that is never delivered.
Home equity. Unscrupulous lenders target consumers who have good credit, but have a bad cash flow. They offer credit based not on income or the ability to repay, but on the equity of the home. Exploitative lenders may take advantage of the borrower by abusive practices such as "loan flipping" by repeatedly talking the borrower into refinancing the loan, which adds to the cost of the debt. If you don't have enough income to make the monthly payments, you will probably lose your home, as many consumers do through these schemes.
Identity theft. This crime occurs when con artists steal credit card numbers, social security numbers, mother's maiden names, or other personally-identifying information without one's knowledge, to tap into the good credit histories of consumers. They then set up new credit accounts, charge purchases to existing accounts, or drain bank accounts. Frequently, consumers don't know that their credit identities have been stolen until they get bills for credit card accounts that they never opened, see charges on their bills that they didn't know anything about, or discover that their bank accounts have been fraudulently accessed.
Congress passed the Identity Theft and Assumption Deterrence Act of 1998, which makes it a federal crime to knowingly transfer or use another person's means of identification to commit any unlawful activity.
File segregation. This is a relatively new scam that could get you fined or sentenced to jail time if you use it. It is an illegal scheme used by credit-repair companies to encourage consumers with unfavorable credit histories to obtain new taxpayer identification or employer identification numbers from the Internal Revenue Service under false pretenses and use them to hide their true credit identities from creditors. For a fee, the companies promise advice on how to go about segregating their credit files. File segregation is illegal and consumers who employ it are committing a felony.
If you have a problem with any of the scams described here, contact your local consumer protection agency, state attorney general, or Better Business Bureau. You can file a complaint with the Federal Trade Commission by phoning the Consumer Response Center: Toll-free, 877-FTC-HELP (382-4357); or writing to: Consumer Response Center, Federal Trade Commission, 600 Pennsylvania Ave., N.W., Washington, DC 20580; or you may use the FTC email complaint form at www.ftc.gov.
Credit Cards Obtained Via 900 Numbers
Source: Federal Trade Commission
... if you have a poor credit history or no credit at all. Beware: while secured credit cards can be an effective way to build or re-establish your credit history, some marketers of secured cards make deceptive advertising claims to entice you to respond to their ads.
Secured vs. Unsecured Cards
Secured and unsecured cards can be used to pay for goods and services. However, a secured card requires you to open and maintain a savings account as security for your line of credit; an unsecured card does not.
The required savings deposit for a secured card may range from a few hundred to several thousand dollars. Your credit line is a percentage of your deposit, typically 50 to 100 percent. Usually, a bank will pay interest on your deposit. In addition,you also may have to pay application and processing fees -- sometimes totaling hundreds of dollars. Before you apply, be sure to ask what the total fees are and whether they will be refunded if you're denied a card. Typically, a secured card requires an annual fee and has a higher interest rate than an unsecured card.
Deceptive Ads and Scams
The Federal Trade Commission (FTC) has taken action against companies that deceptively advertise major credit cards through television, newspapers, and postcards. The ads may offer unsecured credit cards, secured credit cards, or not specify a card type. The ads usually lead you to believe you can get a card simply by calling the number listed. Sometimes the number is not toll-free. A '900' number service, for which you are billed just for making the call, may instruct you to give your name and address to receive a credit application, or give you a list of banks offering secured cards. It also may tell you to call another '900' number -- at an additional charge -- for more information.
Deceptive ads often leave out important information.
- The cost of the '900' call -- which can range from $2 to $50 or more;
- The required security deposit, application, and processing fees;
- Eligibility requirements like income or age;
An annual fee or the fact that the secured card has a higher than average interest rate on any balance.
How to Avoid the Scam
To avoid being victimized, look for the following signs:
- Offers of easy credit. No one can guarantee to get you credit. Before deciding whether to give you a credit card, legitimate credit providers examine your credit report.
- A call to a '900' number for a credit card. You pay for calls with a '900' prefix -- and you may never receive a credit card.
- Credit cards offered by "credit repair" companies or "credit clinics." These businesses also may offer to clean-up your credit history for a fee. However, you can correct genuine mistakes or outdated information yourself by contacting credit bureaus directly. Remember that only time and good credit habits will restore your credit worthiness.
Debt Negotiating Can Land You Deeper In Debt
Out of the Frying Pan ...
Debt Negotiating Can Land You Deeper in Debt
By Greg Hunter
March 26
- Robin Wallum had a purse full of credit cards and $6,900 in debt, so she took what she thought was a positive step, signing on to a debt negotiation company to get herself out of the red.
"If you're making these minimum payments you're never out of debt," the Southern California secretary told ABCNEWS' Good Morning America. "It just builds and builds."
But after making a deal with Jubilee Financial Company, located just outside Los Angeles, Wallum sank deeper into debt than ever. She had hoped for a deal with her credit card company to reduce her $6,900 in debt to a lesser amount, but instead, she wound up with $15,000 in debt.
While working with Jubilee, Wallum had stopped paying her bills as the company recommended, and began paying the debt negotiation company instead. But the interest and penalty fees on her initial debt mounted - and she says she found herself in worse financial shape than before.
Wallum's is not an isolated case. The Los Angeles-area Better Business Bureau has a long list of disenchanted Jubilee Financial customers from across the country.
Traditionally, over-extended credit customers have had two choices: bankruptcy or credit counseling. Most credit counselors teach money management, and for a fee of about $150 a year, they help arrange easier repayment plans.
Questionable Alternative
But some new businesses, like Jubilee Financial, are marketing a questionable alternative, telling debt-strapped customers that if they can't repay their bills, they should negotiate. These new businesses - called debt negotiation companies - are multiplying quickly, and operate with little regulation.
Jubilee Financial Company is operated by John Gustavsen, a retired minister. The company's promise to customers is a simple one.
"Our clients are going to pay half, approximately, of what they owe now," Gustavsen said.
For Wallum, debt was making her desperate - and she says she felt that she had no choice.
"The job I have, I don't make enough to take care of rent, car payment, car insurance, utilities, groceries. And then on top of that I made bad choices. To me, that $6,900 was a bad choice," she said.
Clients like Wallum pay into an account that is controlled by Jubilee. When enough money has built up in that account, the company says it will cut deals, getting creditors to accept as little as 40 cents on the dollar.
Creditors Still Want Their Money
Critics say the big problem with companies like this, including Jubilee Financial, is that they instruct clients to stop paying creditors - and to pay the debt negotiation company instead. But they say that move is tantamount to financial suicide.
"If you think about it for a minute, what happens if you stop paying your bills?" said Bill Mitchell from the Better Business Bureau. "Good things aren't going to happen."
But he recognizes how such companies draw customers.
"These companies offer a very appealing product," Mitchell said. "And that is they're going to take all this debt that you owe and settle this for a fraction of the total."
Wallum said that she expected Jubilee Financial to shield her from the creditors she was not paying. But she says they did not, and her creditors called her relentlessly. She received threatening phone calls at work and at home, as well as nasty letters, Wallum said.
Read the Literature
Jubilee tells clients in writing that it cannot stop interest and late fees. It also says the program "may have a negative effect on your credit rating, but, that "experience has shown that 12 months after completing the ... program, your credit will have been restored."
Jubilee owner Gustavsen says credit reports will show debt has been settled. However, he also concedes that negative credit information follows people for much longer than one year. In fact, the information may linger on your credit report between seven and 10 years, he said.
"In reality you're going to be much more miserable than you ever were, because you won't have any credit," Mitchell said. "You're going to be harassed by these companies who are trying to collect legitimate debts. You will be sued, you'll get collection agencies on your back. Believe me, none of this stuff is pleasant."
But Gustavsen says the clients who complained about his company didn't give his program a chance.
"All those people quit," he said. He also showed Good Morning America documents from clients who successfully completed the program, canceling 50 percent or more of their debt. However, it should be noted that the amount of the debt reduction is treated as income by the Internal Revenue Service, and it may be subject to taxes.
Non-Refundable Fee
Some of the people who complained about the company reportedly quit because they said Jubilee Financial did not return their phone calls, did not refund their money and continued to draw payments out of their bank accounts.
But Gustavsen says that he does return clients' money, but that the fee, which averages $1,100, is non-refundable. He also admits his company had some phone and staffing problems, but says they are now resolved.
He blames an outside marketing company for misleading clients about what to expect, and mishandling their accounts.
The Los Angeles area Better Business Bureau president has another explanation.
"What you got was your wallet lightened and your credit ruined," Mitchell said.
Gustavsen says that people know about the fee going in, and says that his business does help people who remain in the program.
"It helps people - they're into the program now, and it means we can stay in business," he said. Though it might be painful at first, his way is cheaper in the end, because clients repay just part of their debt, he added.
His critics are simply competitors who do not like losing customers, Gustavsen said. "Who's the crook if they charge four times more than our people would pay?" he said.
But Wallum, who has filed for bankruptcy, said she has advice for anyone who would consider getting a company to negotiate down their debt.
"Pick up your money, and run in the other direction," she said.
FTC Files Lawsuit Against AmerDebt
Agency Alleges that "Credit Counseling" Firm Misrepresents Costs and Nature of Its Services
For Release: November 19, 2003
The Federal Trade Commission has filed a complaint in federal court charging that a national organization that promotes itself as a non-profit credit counseling agency is engaged in deceptive practices. According to the FTC’s complaint, the defendants have misrepresented that they charge no up-front fee for their services, that they operate as a non-profit, and that they teach consumers how to handle their finances. Additionally, the FTC charges that the organization failed to provide privacy notices to consumers as required by the Gramm-Leach-Bliley (GLB) Act. Separately, a service provider for the defendants has agreed to settle FTC charges regarding its role in the operation. The FTC also has reissued two updated consumer alerts on credit counseling.
The FTC’s complaint charges Maryland-based AmeriDebt, Inc.; DebtWorks, Inc.; and Andris Pukke; and also names Pamela Pukke (a/k/a Pamela Shuster) as a relief defendant. AmeriDebt has widely advertised its credit-counseling services on a national basis. DebtWorks serviced consumer accounts on behalf of AmeriDebt until the end of 2002. Andris Pukke currently owns and was chairman and CEO of DebtWorks, and was instrumental in founding AmeriDebt.
According to the Commission’s complaint, the defendants claim that AmeriDebt is a non-profit organization dedicated to assisting consumers with their personal finances. The FTC alleges that AmeriDebt does not operate for charitable purposes, but rather to make money for affiliated for-profit companies and individuals, including DebtWorks and Andris Pukke. In addition, the complaint alleges that the defendants do not teach consumers about their finances or how to handle debt in the future, despite claiming that they do. Rather, the defendants enroll all of their clients in "debt management plans" (DMPs). In a DMP, the client makes a single consolidated monthly payment to the defendants for all of their unsecured debts included in the plan, which the defendants then disburse to the creditors.
The FTC’s complaint further alleges that the defendants charge an up-front fee to consumers enrolling in a DMP, despite claims to the contrary in their advertising. The defendants allegedly urge consumers to make an initial payment to enroll formally in the program. Rather than disbursing that payment to creditors, the FTC alleges, AmeriDebt keeps it as its fee. Although the contract with consumers refers to this payment, it is described as" voluntary" and is inconsistent with the earlier claims that there are no up-front fees.
The FTC further alleges that the defendants violated the GLB Act by failing to provide consumers with the required privacy notices regarding the collection, disclosure, and protection of consumers’ nonpublic personal information.
"We will not allow consumers to be duped into ‘contributing’ hundreds of dollars to these so-called ‘non-profits,’" said Howard Beales, director of the FTC’s Bureau of Consumer Protection. "There was nothing voluntary and nothing charitable about these payments. Consumers’ money didn’t go to creditors, it just ended up lining the pockets of the defendants."
The FTC’s complaint asks that the court permanently enjoin the defendants from misrepresenting their fees, services, or non-profit status; require that the defendants disclose that they retain the consumer’s first payment; and order the defendants to provide privacy notices to consumers. The complaint also asks that the court award consumer redress.
In a related matter, defendants Ballenger Group, LLC, and its parent, Ballenger Holdings, LLC, have agreed to settle FTC charges regarding Ballenger Group’s role in the AmeriDebt operation. According to the FTC, Ballenger has acted as the servicer for AmeriDebt’s DMPs since the beginning of this year. In a separate complaint, the FTC alleges that Ballenger was closely associated with the other defendants and that it repeated some of AmeriDebt’s misrepresentations in direct statements to consumers on the telephone. In particular, it misrepresented that AmeriDebt is a non-profit entity and failed to disclose that the first payment is retained by AmeriDebt as a fee, according to the FTC. The settlement enjoins Ballenger from misrepresenting that there are no fees; that no profits are being made from the goods or services provided; and that money paid by a consumer on a DMP will be disbursed to creditors. The settlement further orders the defendants to pay $750,000 in consumer redress and contains standard recordkeeping provisions to assist the FTC in monitoring their compliance.
The FTC has published valuable consumer education material to assist consumers seeking credit counseling. The two publications reissued today - "Knee Deep in Debt" and "Fiscal Fitness: Choosing a Credit Counselor."
In addition to the FTC’s action, the attorney general of Minnesota and the Attorney General of Texas are filing suit against AmeriDebt and related parties today. Earlier this year, the attorneys general of Illinois and Missouri filed suits against AmeriDebt. That litigation is ongoing.
This case was brought with the invaluable assistance of the Better Business Bureau of Metropolitan Washington. The Commission vote to authorize staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the District of Maryland on November 19, 2003. The Commission vote to approve the Ballenger Group settlement was 5-0. The complaint and settlement were filed in the U.S. District Court for the District of Maryland on November 19, 2003.
Consumers may call the AmeriDebt case hotline at 1-877-862-0886. NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
The stipulated final order for Ballenger Group is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.
Copies of the Commission’s complaints and settlement are available from the FTC’s Web site at www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1 877-382-4357), or use the complaint form at www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
